May I start by congratulating the Malta Institute of Management for putting together such an excellent programme for today’s conference and for attracting speakers of such quality and experience.
The theme of the programme - “A New Beginning” - is a very appropriate one at this delicate stage in the cycle of the world economy. Indeed, to be able to talk with confidence on such a subject calls for a sound platform - one that has withstood the test and that has come out of it with renewed focus and vigor.
Stability and resilience have characterized the Maltese financial sector throughout the crisis. Despite the enormous challenges they have had to face, none of our firms have been severely impacted by the global financial crisis and the global recession. Quite the contrary, the sector has continued to benefit from the momentum already established before the crisis and Malta continued to experience growth where many other centres experienced contraction.
Our tried and tested methods of doing business coupled with our high standard of vigilance and robust regulatory framework have been key to keeping the Maltese financial system and the wider economy as a whole on a steady course. This is no mean feat, given the size of the country and the high degree of integration that exists with the global economy on a financial, commercial and investment level.
There is, indeed, much to admire in a culture of restraint and sustainability that promotes ethical and responsible behaviour even in the cut-throat world of international finance. In this respect, the traditional values that have been carefully nurtured by the Maltese people over the ages would certainly have played a pivotal role in keeping the excesses to which the finance sector is intrinsically prone at bay. This, certainly, is one important parallel that may be drawn between the best in conventional finance and the Islamic approach to financial dealing, that respects balance and fairness above all else.
Perhaps the strongest indicator of this is that, despite the turmoil that affected the international economic environment, the financial sector’s contribution to the Maltese GDP grew by an impressive 22% during last year. But there is more to Malta than strength in the face of adversity. Our industry is fortunately able to tap into a highly competent workforce that embraces change and can quickly translate it into opportunity.
Our ability to focus has enabled us to identify and develop products that are particularly suited to our make-up. Our success, it must be acknowledged, owes much to the fact that we have had to concentrate harder on areas where we can punch well above our weight. In this manner we have managed to overcome our smallness and to carve out markets that are relatively much bigger to our size.
A case in point is the fund sector where we set out to develop as an alternative fund domicile and gradually added layer upon layer of fund products and services that have turned us into what recent surveys have confirmed to be the best known Mediterranean fund domicile by far, according to the International Fund Investment. In the space of a few years, the country has become home to over 400 funds including 300 alternative investment funds as well as a significant number of UCITS funds.
More recently the domicile has witnessed growth in fund administration and asset management while a breakthrough in the transfer agency and custody business is now imminently expected. Underpinning this whole process is a gradually evolving legal and business infrastructure that has harnessed innovation and is using it to maximum effect, to the extent that today one out of every five funds seeking to domicile in the EU wants to do so in Malta.
It is in this spirit that in recent years the country has been studying the Islamic finance sector as potentially adding a new dimension to its successful business model.
Industry research has already established that Islamic financial institutions are able to make use of various contracts in order to provide Sharia compliant instruments. These contracts are based on elements that in many ways are parallel to the contractual elements found in our legal system, either as comprised within traditional civil law institutes - such as sale, lease, mandate - or as used in practice in numerous transactions that may be freely structured in terms of Maltese law using legal tools and techniques such as reservation of ownership and deferred contract terms.
These compatibilities clearly favour the assimilation of Sharia compliant financial and investment arrangements into a Maltese legal framework and enable the Maltese financial industry to participate in this growth market. Islamic finance moreover would also find the flexibility and the rich legal heritage underpinning Maltese contractual law to be an excellent platform for innovation and the development of complex products. After all the civil law system also forms the basis of the legal systems which exist in many countries embracing Islam.
From a regulatory perspective, concrete steps have also been taken to facilitate Islamic finance activities in a local scenario.
On balance, the direction taken has been that any changes to the legislative and regulatory framework that may be recommended should not make any radical change to the underlying legal concepts of banking, securities and other types of financial services. Rather these changes should endeavor to accommodate concepts and techniques normally used in Islamic finance without changing the basic principles that underpin the local framework and financial practices developed over a great number of years.
This ensures three things:
First, that a level playing field is maintained between all forms of financial services, be they conventional or alternative in nature and enables them to be regulated by a single regulatory regime that is common to both and that continues to embrace the whole spectrum of financial services.
Secondly, it ensures that – as has been done with the absorption of the trust concepts from common law – any techniques that are imported from Islamic finance are well understood and put into practice by local practitioners with a more likely chance of success.
Third, it ensures that the convergence found on the legal level is recognized at the regulatory level in a manner that permits Islamic finance products to be licensed and regulated in Malta. This is an important issue. Because of the structure of certain products which are particular to Islamic finance, their characterization under a conventional system like ours might not always be the same as in the legal and regulatory system under which they originate.
Consequently the applicant must ensure that the application is made for the correct licence scope according to the activity they wish to undertake. This is the case for example with the characterization of certain Islamic banking products as investment products under our system.
The policy objective therefore remains one of having a streamlined framework that recognizes the characteristic financing techniques more frequently (though not exclusively) used in Islamic financing in a Maltese legal and regulatory setting.
In this context, the MFSA’s Guidance Note for Shariah Compliant Funds published earlier this year is an example of how Islamic finance products can be developed, authorized and marketed under an established regulatory framework. The Guidance Note sets out clearly the issues that Shariah fund promoters should look at in establishing their funds in Malta. It comes at a time when Malta is experiencing a quantum leap in the funds business and provides asset managers specialised in Sharia funds with a unique opportunity to tap the European market and, through it, the global market as well.
As a regional distribution and customer servicing hub with full access to the European financial markets and a physical and cultural proximity to southern European, North African and Middle Eastern markets, there are few other centres in the area that are as so well placed for the purpose. I invite you all to look more closely at these opportunities and work with us to take them to the vast market out there.
Thank you for your attention and I wish you a fruitful conference today.
Source : http://www.doi.gov.mt/en/press_releases/2010/10/pr1965.asp - Oct 27, 2010
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